So I didn’t just go ahead and splash out on buying an investment trust this week. I thought about it. But I stopped myself.
Here’s what happened.
My assignment was to work out what an investment trust is and what’s involved in getting one. By the time I’d figured out those two things it seemed a no-brainer to spend another couple minutes buying one for myself. It had been such hard work trying to follow the explanations for what these are, I sought the immediate relief of having completed my homework … so that I could get back to things I have a chance of understanding.
If I trusted the source I was reading — and I did, then all I needed to know was that compared with other types of investment, these trusts tend to earn a lot more money — in the long run. Why wouldn’t I want to take say £100 and put it somewhere where in ten years it might quadruple in worth (like some of the Asia funds)?
Because … if it’s going to grow by 400% maybe I should put in a lot more than £100, that’s why. But if I was going to put in anything other than a nominal amount, then shouldn’t I better understand what the heck these things are …
Before I get onto how I untangled myself from the circle I’d created for myself, a few words for those of my readers who have no savings, only debt …
I understand. Really, I do. It’s hard to listen to someone fretting about their savings while you’re lying awake at night chewing your thumbnail over debt. But, back to me.
(Eventually back to you, if you can stick with the savings chat a bit longer)
Not that I’ve heard it called this, but I think of savings as being like a water fountain ever since someone explained to me that it’s like turning on a tap and letting the water overflow — as it does in a fountain, filling up one pool before overflowing into the next pool before overflowing into the next and so on.
These pools of water represent different sorts of savings. The uppermost and immediate pool is our emergency fund. This is the money we’ve stashed to cover a sudden crisis — like losing our job. Once the emergency pool is full, only then does it make sense to fill up other types of savings account — pools where we have less access to our money in the short term, but where the money tends to expand and grow at a higher rate than the typical low-interest savings account.
How can the Water Fountain approach help those of us in debt? It’s a friendly reminder that debt leaks money. The more debt we have, the more of our money is going down the drain paying off interest. That said, there are reasons to try to fill the emergency savings account even when we’re in debt. For more on that, check out this article.
As for me, I decided that the best thing to do was email my financial advisor. Gordon, I wrote, these Asia Fund Investment units look interesting. When it comes to trying to save my ISA allowance next year, why wouldn’t I put my money here?
I await his response but consider my weekly assignment DONE. Till tomorrow when I face a new task.